Author: Tom Wheelwright
My Rating: 4/5
Summary: Practical advise to legally pay less in taxes and grow your wealth.
My Takeaways
- Include tax planning on your wealth strategy, because taxes are the largest expenses.
- The fastest way to make more cash is reduce taxes
- The tax is primarily written to reduce your taxes legally
- 99.5 of the tax law exists to save you money on taxes
- Stop being average by doing what Congress incentives in tax subsidies
- The Tax law is a stimulus package for entrepreneurs and investors.
- Want to encourage job creation.
- Affordable housing for real estate investors
- Change your facts to change your tax
- Invest where you travel because almost any expense can be deductible
- IRS says you must spend at least half the time (4 hours working) on business
- Meals are business expenses that can be deducted. 20-30%
- Learn how an LLC can be whatever it wants to be for taxes, gives best of asset protection and tax reduction. (S-Corp, C-Corp, LLC or LLP)
- Make sure to select which tax entity you want to be on the IRS Entity election form.
- You can change the entity form at any time. (i.e from Sole proprietor to C-corp to reduce employment taxes)
- Everything you do increases or lowers your taxes.
- Change your personal expense to a business expense.
- Expense must have a business purpose
- Must be ordinary – typical of what would be spent in your industry (i.e. price)
- Must be necessary. Make more money for business
- Make your business a family business.
- Families’ travel is deductible when traveling for business
- Shift income from higher tax bracket to lower business.
- Shift income to children by having them work in the family business
- Tax deduction at higher tax bracket for payroll for Dad
- Kids report income at lower tax bracket
- No social security tax for dad
- Educational benefits for kid
- Keeps money in family and business going
- Shift income to “Big Business” and “Investor”
- Almost any expenses can be deductible
- Must be business or investment
- Purpose must be to produce more income
- Business expenses are best, then real estate
- Must be entrepreneur or investor
- Must be an “active” investor that invests for passive income, not earned income.
- Income from dividends, rent and business. Taxes at a lower rate than earned income.
- Actively involved in creating wealth
- Make sure bookkeeping is up to date. Document everything!
- Think about your business as a big business the way Microsoft does.
- Depreciation is Magic and can be applied to assets in a business
- For real estate – you can a deduct the entire amount of the building over a set period of time. This includes your money and the bank’s money.
- Get money as quickly as you can with more deductions as soon as possible.
- Tip: Properly document all values of the depreciated items in a cost segregation or chattel appraisal.
- Portion of house that use for office.
- Amortization is used for intangible business assets that depreciate. Such as software. .
- You must elect to deduct amortization in your tax return
- Cost Segregation must be done by a professional engineer or CPA
- Can catch up on previous years depreciation
- Most income on the B and I side of the quadrant is from business or investments, not salary since that’s taxed at the highest rate.
- Think of your income in 5 buckets
- Earned income (wages that have high tax)
- Ordinary income (pensions, 401k)
- Investment income (cap gains, interest and dividends, 1031 exchanges)
- Gift or inheritance tax
- Passive income. (Business or real estate income)
- The more money you make, the more concerned you should be where it’s coming from
- Ordinary income is taxed higher than passive income.
- In kind exchanges are a way to minimize taxes
- It’s not how much you own, but control
- Leverage Tax credits to lower taxes. Refundable and non refundable
- When you want to reduce your tax, reduce the base on which it’s measured.
- Set up a LLC company so that you are the owner and employee of the company and set your salary to the lowest possible, and dividends and distributions of the companies earnings to the highest possible.
- Must be reasonable salary and rate in your industry. Don’t pay too much or too little so you don’t get audited.
- Get rid of assets to avoid state tax
- Create a trust and a will
- Limiting your estate tax through limited partnerships
- Collect sales tax
- Combine tax strategy with asset protection strategy. Minimize ways you can get sued.
- Have assets protected from financial predators in an LLC.
- You should not contribute to government approved retirement accounts because they don’t keep up with inflation and assume you’ll be poor at retirement age